Snippits from Storm Financial
Since this was the tripe being spat out of their research department, is it any surprise no one was sold out before they lost everything?
Research Department
Storm Financial Pty Ltd.
Updated: 5:00pm, Tuesday 21st August 2007
Storm has always maintained that the further we get into this bullish cycle, the higher the volatility will become. This recent blip is therefore unlikely to be a fundamental change in economic / sharemarket trend. What this blip is likely to mean, for those with foresight, is an opportunity to have invested relatively low and finally gotten the chance to employ Storm’s approach to wealth creation, which is to accept the market average but attempt to outperform it when pockets of value present themselves, i.e. buying low to outperform the averages. With relatively linear sharemarket growth over the last 5 years, it has been difficult to find these little pockets of value but as volatility begin to increase, falls such as these may continue to land in our lap.
Consider this, the normally conservative Reserve Bank of Australia (RBA) still finds our economy a little too hot for their liking, thus the recent 25 basis point hike in interest rates, They’d most certainly not want to be hiking rates in an economy that had fundamentally changed for the worse, especially leading into an election. So this brings us full circle, back to the US sub-prime development, which realistically is not materially relevant for Australia and even less so for the Storm style of investing. Australia is not exposed to the extraordinary levels the US was and Storm’s preferred investment process even less so than that of Australia.
Remember, there is a difference between investing and speculating. Storm try to do the latter, believing in economic investments and the material elimination of asset default risk and the elimination of the subjectivity of selection risk. We attempt to focus on maximizing the right investment principals, which is why Storm is focusing as much as possible on advising clients to invest now, whilst the industry itself is reeling from a mere 8% (12% at it’s worst point) aggregate sharemarket fall and getting record numbers of margin calls.
Commentary for first quarter 2008
The continued tightening of monetary policy over the past two quarters, flailing consumer sentiment, softening economic growth, further global credit scares and a second consecutive negative quarter in domestic and global sharemarkets may have all now conspired to potentially indicate an end to this current sharemarket turmoil in Australia. It may be time for the bulls to sneak back into the market place…
This quarter’s sharemarket value wash out may now be close to the end but leaving the explanation for the above arguments aside, which will be discussed further down, simple statistical evidence indicates that a potential bottom for this current bearish sharemarket cycle is statistically probable. While depending solely on statistical evidence is a very dangerous game, and right interpretation of data is paramount, one can use this evidence as a piece to a very complex puzzle in trying to understand core trends of most financial markets.
over a very long time, our market as a whole survives and continues to grow at solid and reasonably consistent rates. As of the dates in the above graph, our sharemarket shows an 11.26% compound p.a. return. However as time goes by and our country / economy / market matures, this rate gets higher and more profitable. For example, this leading index over the past 50 years from 1957 to present has a 12.79% compound p.a. return and for the past 30 years from 1977 to present has a 15.38% compound p.a. return. So while the 110-year average is 11.26%, the return seems to be increasing as time goes on, but that is a very complex story for another time.
The take out for us today is the above performance graph indicates that this current climate is likely to be temporary (but of course not the last impact our market will see) and is unlikely to be the final killer blow to our broader market, as some are erroneously anticipating. This is consistent with Storm’s approach of total market indexation coupled with no market timing, where we accept the overall natural, un-timed and neutral sharemarket returns and do not speculate on sectors, sub-sectors, industry groups or direct companies, which are all subject to potential default risks. Fundamentally the sharemarket is an efficient financial mechanism and with the long term in mind, we can harness this ongoing wealth in a safe way.
there have only ever been 14 periods in almost three decades where the sharemarket has finished negatively for three or more consecutive months. Of those 14 periods, only four times has the sharemarket finished negatively for five consecutive months. Since 1980, our sharemarket has never closed lower for more than five consecutive months and we have just closed March 2008 as the fifth month having posted negative capital growth in this current bearish cycle.
Essentially that means that while it is entirely possible for us to close for another month in negative territory for April, that statistically it would be an anomaly and a new record would be set for the sixth consecutive negative month in a period. On top of this, the month coincides with April, which is historically is the most profitable month of our calendar.
This can give some view that despite all that has happened in almost three decades, a five month wash off of value has been all that was required to break the back of whatever was causing the initial financial mess. This is not to say that the following recoveries are consecutive month on month growth, but retrospectively you find a break point or low for a poor period, similar to the period of March 2003 being the fundamental shift of our market back to bullish ways after the 9/11 – Iraqi war turmoil.
So what are the chances for further turmoil? What are the chances of another month down? Well no one can really know the answer for either question. So what do the statistics imply? What are the statistical chances that we are close to, or at the bottom of this current trough? Well statistically speaking, the probabilities are very high actually. This statistical evidence then implies that the value in our market place may be the best it has been since 2003 or even as early as the month following the crash of 87…
business confidence is still high and companies are still reporting solid earnings. This strong economic contradiction may indicate that our reactions to the sub-prime / global credit mess is more emotional for Australia. On top of this, Australia is in no real way exposed to this sort of poorly managed financial mechanism and certainly not at the level the US and other major country’s are, reinforcing the fact that our dramatic falls are emotionally based, not based on fundamentals (as in the US). It also may indicate that an equally speedy recovery is ever more likely due to this fact.
Incidentally, as the title indicates the bulls may already be back sooner than some expected with leading sharemarket indices having risen for all five trading days for the first week in April. These indices have recovered approximately 5% this week alone, leaving leading broad market indices very near the 5700pts barrier…
Overall not a great quarter but we can take some comfort in the information available with statistical data as well as economic fundamentals, not to mention the longer term performance of our sharemarket which we touched on at the start of this commentary, painting a positive picture for the future. There will be up and down periods in our sharemarket. But these periods to date have never brought the sharemarket to its knees, which historically have always reverted back to its longer-term averages. On top of all that, this week has shown some resilience coming back into our market place, despite what global markets have done with five consecutive days on the rise. Let's hope the bulls hang round for a while and make April yet another great month for our sharemarket. Remember, it is far more dangerous to be out of a rising market than in a falling market. This investment adage may be more pertinent at times like these as we await an impending recovery.
Watch out next week for a full wrap of leading global sharemarkets and the global economy as a whole for Q1-2008. We will discuss what issues will be facing the US over the next few years and how much of a role Asia may play. We will of course also touch base on the progression of our sharemarket recovery that may have already begun this week…
Storm Financial Ltd.
Since this was the tripe being spat out of their research department, is it any surprise no one was sold out before they lost everything?
Research Department
Storm Financial Pty Ltd.
Updated: 5:00pm, Tuesday 21st August 2007
Storm has always maintained that the further we get into this bullish cycle, the higher the volatility will become. This recent blip is therefore unlikely to be a fundamental change in economic / sharemarket trend. What this blip is likely to mean, for those with foresight, is an opportunity to have invested relatively low and finally gotten the chance to employ Storm’s approach to wealth creation, which is to accept the market average but attempt to outperform it when pockets of value present themselves, i.e. buying low to outperform the averages. With relatively linear sharemarket growth over the last 5 years, it has been difficult to find these little pockets of value but as volatility begin to increase, falls such as these may continue to land in our lap.
Consider this, the normally conservative Reserve Bank of Australia (RBA) still finds our economy a little too hot for their liking, thus the recent 25 basis point hike in interest rates, They’d most certainly not want to be hiking rates in an economy that had fundamentally changed for the worse, especially leading into an election. So this brings us full circle, back to the US sub-prime development, which realistically is not materially relevant for Australia and even less so for the Storm style of investing. Australia is not exposed to the extraordinary levels the US was and Storm’s preferred investment process even less so than that of Australia.
Remember, there is a difference between investing and speculating. Storm try to do the latter, believing in economic investments and the material elimination of asset default risk and the elimination of the subjectivity of selection risk. We attempt to focus on maximizing the right investment principals, which is why Storm is focusing as much as possible on advising clients to invest now, whilst the industry itself is reeling from a mere 8% (12% at it’s worst point) aggregate sharemarket fall and getting record numbers of margin calls.
Commentary for first quarter 2008
The continued tightening of monetary policy over the past two quarters, flailing consumer sentiment, softening economic growth, further global credit scares and a second consecutive negative quarter in domestic and global sharemarkets may have all now conspired to potentially indicate an end to this current sharemarket turmoil in Australia. It may be time for the bulls to sneak back into the market place…
This quarter’s sharemarket value wash out may now be close to the end but leaving the explanation for the above arguments aside, which will be discussed further down, simple statistical evidence indicates that a potential bottom for this current bearish sharemarket cycle is statistically probable. While depending solely on statistical evidence is a very dangerous game, and right interpretation of data is paramount, one can use this evidence as a piece to a very complex puzzle in trying to understand core trends of most financial markets.
over a very long time, our market as a whole survives and continues to grow at solid and reasonably consistent rates. As of the dates in the above graph, our sharemarket shows an 11.26% compound p.a. return. However as time goes by and our country / economy / market matures, this rate gets higher and more profitable. For example, this leading index over the past 50 years from 1957 to present has a 12.79% compound p.a. return and for the past 30 years from 1977 to present has a 15.38% compound p.a. return. So while the 110-year average is 11.26%, the return seems to be increasing as time goes on, but that is a very complex story for another time.
The take out for us today is the above performance graph indicates that this current climate is likely to be temporary (but of course not the last impact our market will see) and is unlikely to be the final killer blow to our broader market, as some are erroneously anticipating. This is consistent with Storm’s approach of total market indexation coupled with no market timing, where we accept the overall natural, un-timed and neutral sharemarket returns and do not speculate on sectors, sub-sectors, industry groups or direct companies, which are all subject to potential default risks. Fundamentally the sharemarket is an efficient financial mechanism and with the long term in mind, we can harness this ongoing wealth in a safe way.
there have only ever been 14 periods in almost three decades where the sharemarket has finished negatively for three or more consecutive months. Of those 14 periods, only four times has the sharemarket finished negatively for five consecutive months. Since 1980, our sharemarket has never closed lower for more than five consecutive months and we have just closed March 2008 as the fifth month having posted negative capital growth in this current bearish cycle.
Essentially that means that while it is entirely possible for us to close for another month in negative territory for April, that statistically it would be an anomaly and a new record would be set for the sixth consecutive negative month in a period. On top of this, the month coincides with April, which is historically is the most profitable month of our calendar.
This can give some view that despite all that has happened in almost three decades, a five month wash off of value has been all that was required to break the back of whatever was causing the initial financial mess. This is not to say that the following recoveries are consecutive month on month growth, but retrospectively you find a break point or low for a poor period, similar to the period of March 2003 being the fundamental shift of our market back to bullish ways after the 9/11 – Iraqi war turmoil.
So what are the chances for further turmoil? What are the chances of another month down? Well no one can really know the answer for either question. So what do the statistics imply? What are the statistical chances that we are close to, or at the bottom of this current trough? Well statistically speaking, the probabilities are very high actually. This statistical evidence then implies that the value in our market place may be the best it has been since 2003 or even as early as the month following the crash of 87…
business confidence is still high and companies are still reporting solid earnings. This strong economic contradiction may indicate that our reactions to the sub-prime / global credit mess is more emotional for Australia. On top of this, Australia is in no real way exposed to this sort of poorly managed financial mechanism and certainly not at the level the US and other major country’s are, reinforcing the fact that our dramatic falls are emotionally based, not based on fundamentals (as in the US). It also may indicate that an equally speedy recovery is ever more likely due to this fact.
Incidentally, as the title indicates the bulls may already be back sooner than some expected with leading sharemarket indices having risen for all five trading days for the first week in April. These indices have recovered approximately 5% this week alone, leaving leading broad market indices very near the 5700pts barrier…
Overall not a great quarter but we can take some comfort in the information available with statistical data as well as economic fundamentals, not to mention the longer term performance of our sharemarket which we touched on at the start of this commentary, painting a positive picture for the future. There will be up and down periods in our sharemarket. But these periods to date have never brought the sharemarket to its knees, which historically have always reverted back to its longer-term averages. On top of all that, this week has shown some resilience coming back into our market place, despite what global markets have done with five consecutive days on the rise. Let's hope the bulls hang round for a while and make April yet another great month for our sharemarket. Remember, it is far more dangerous to be out of a rising market than in a falling market. This investment adage may be more pertinent at times like these as we await an impending recovery.
Watch out next week for a full wrap of leading global sharemarkets and the global economy as a whole for Q1-2008. We will discuss what issues will be facing the US over the next few years and how much of a role Asia may play. We will of course also touch base on the progression of our sharemarket recovery that may have already begun this week…
Storm Financial Ltd.
